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UNCLAS LIBREVILLE 000015
DEPT PASS USTR
STATE FOR EB/IFD/OIA
E.O. 12958: N/A
TAGS: EINVOPICUSTRKTDBEFINETRDELABPGOVTP
SUBJECT: INVESTMENT CLIMATE STATEMENT 2009 - SAO TOME AND PRINCIPE
REF: 08 STATE 123907
¶1. Per reftel, following is the Investment Climate Statement for Sao
Tome and Principe.
------------------------------
Openness to Foreign Investment
------------------------------
¶2. While the Government of Sao Tome and Principe (GoSTP) has a
positive attitude toward foreign investment, current business
regulations present foreign investors with significant bureaucratic
and procedural hurdles. However, a new investment code promulgated
in the second half of 2007 has made the business environment more
attractive to foreign investors. The consensus among government
authorities and economic analysts is that considerable foreign
investment is needed for the development of agriculture and
fisheries, tourism, telecommunications, and financial services.
¶3. The Investment Code of 2007 provides for both public and mixed
capital investments, allowing foreign investment in every sector of
economic activity except limited areas reserved to the State
(activities related to the military and paramilitary sectors and the
operations of the Central Bank). Areas open to foreign investment
include agriculture; fisheries; tourism; construction; port and
airport infrastructures and services; transportation;
telecommunications; financial services; electricity, water and
sanitation services; production of basic consumer goods, and natural
resources (oil and gas).
¶4. The new investment code replaced the investment code of 1992 and
its three-tiered incentive scheme. The new investment code sets
forth a new legal framework under which only investments above USD
250,000 are eligible for benefits and guarantees. Investments under
USD 250,000 are no longer eligible for incentives and benefits, but
would be protected against expropriation. Qualifying investment
projects will benefit from fiscal incentives. Incentives also
include the use of state-owned buildings and/or land for the
duration of investment projects, as well as provision of
administrative services to facilitate the process of obtaining
access to state-owned buildings and land.
¶5. Created in 1989, the national Chamber of Commerce serves to
organize the private sector and encourage private sector
participation in public works projects. In addition, the Chamber of
Commerce works with the National Statistics Institute (INE) to
collect and distribute information aimed at facilitating business
decision-making.
--------------------------------
Conversion and Transfer Policies
--------------------------------
¶6. The national financial system is supervised by the Central Bank
of STP (BCSTP), which defines monetary and exchange rate policies in
the country. Among other responsibilities, the BCSTP sells hard
currencies and establishes indicative interest rates. The dobra
(denoted by the acronym "STD") is the country's national currency.
One US dollar is equivalent to about 14,000 STD.
¶7. The government has been working closely with the BCSTP to ensure
that greater inflows of foreign exchange translate into an increase
in access to raw materials for business. The STD exchange rate is
determined by the BCSTP based on a specially weighted basket of
currencies from countries that enjoy influential trade and financial
relations with STP. This policy has been in effect since 1988 and
continues to be effective in achieving relative stability of the
exchange rate against major world currencies, especially the US
dollar and the euro. The composition of this basket of currencies
is subject to periodical reassessment given local and international
economic and monetary developments.
¶8. Repatriation of capital is possible with prior authorization.
Transfer of profits outside of STP is also allowed after the
deductions for legal and statutory reserves and the payment of
existing taxes. Reinvestments are encouraged by the State with
associated reductions in income taxes.
------------------------------
Expropriation and Compensation
------------------------------
¶9. STP government policy maintains strong protection of all types of
property, including private property, and the right of citizens to
own and use property. Expropriation is allowed in the public
interest but only with adequate compensation. There is no evidence
to suggest that repatriation would be undertaken in a discriminatory
manner or in violation of established principles of international
law.
¶10. Aside from a massive land expropriation from colonial farmers on
September 30, 1976 -- later recognized as detrimental to the economy
of STP -- there have not been any documented cases of expropriation
of foreign-owned properties.
------------------
Dispute Settlement
------------------
¶11. Disputes are generally solved amicably without litigation, and
there are few known instances of disagreements involving foreign
investors reaching international courts.
---------------------------------------
Performance Requirements and Incentives
---------------------------------------
¶12. There are no specific performance requirements imposed as a
condition for establishing, maintaining or expanding investment.
There are no requirements for investors to buy local products, to
export a certain percentage of output or to invest in a specific
geographical area. There is no blanket requirement that nationals
own shares in foreign investments in STP.
--------------------------------------------
Right to Private Ownership and Establishment
--------------------------------------------
¶13. Foreigners are free to establish and own business enterprises
and engage in all forms of business activity in STP with the
exception of the military sector. Prohibitions exist in the
ownership of certain types of guns. In addition, the form of public
participation (percentage of government ownership in joint ventures)
varies with each agreement.
¶14. The government of STP is gradually moving towards open
competition in all sectors of the economy, and competitive equality
is the official standard applied to private enterprises in
competition with public enterprises with respect to access to
markets, credit, and other business operations. Former public
monopolies in farming, banking, insurance, airline services,
telecommunications, and trade (export and import) have already been
eliminated.
-----------------------------
Protection of Property Rights
-----------------------------
¶15. The GoSTP guarantees private property rights, and expropriation
for public use must be accompanied by a fair, adequate and effective
payment in advance.
---------------------------------
Transparency of Regulatory System
---------------------------------
¶16. The laws and regulations that affect direct investment, such as
environmental rules, health and safety regulations, etc., are
non-discriminatory and apply equally to foreign and domestic firms.
STP tax laws reward Santomeans who return to their home country,
while also containing provisions for attracting non-Santomean
personnel to live and work in STP.
¶17. Labor, health, and safety laws exist but are not properly
enforced. There are some reports that the process of terminating
unsatisfactory employees is cumbersome and that protective labor
laws make it very difficult to bring skilled foreign-national
specialists such as pilots, engineers, or architects into STP.
--------------------------------------------- -----
Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----
¶18. The banking system in STP has seen significant development in
recent years. Until recently, STP had only one commercial bank.
Currently, there are seven private commercial banks, six of which
were opened in last three years. Portuguese, Angolan, Nigerian,
Cameroonian, and Togolese interests (as well as those of Sao Tome &
Principe) are represented in the ownership and management of the
commercial banks.
¶19. Commercial banks offer most corporate banking services, or can
procure them from overseas. Local credit to the private sector is
limited and expensive, but available to both foreign and local
investors on equal terms. The country's main economic actors
finance themselves outside STP. Commercial banks have transferred
excess liquidity to correspondent banks outside the region.
------------------
Political Violence
------------------
¶20. Considered a low threat country, STP is characterized by its
stability, untroubled ethnic interaction, and a laid-back lifestyle
which locals refer to in Portuguese as leve-leve (take it easy). In
a highly consensus-oriented society, political violence is rare.
There were several coup attempts before 2003, but with very low
levels of associated violence, and no casualties. Three elections
in 2006 (legislative in March, presidential in July, and local in
August) were all judged free and fair by international observers.
However, STP's reputation as a vibrant democracy has suffered due to
recent political instability that has seen several changes in
government. Strikes are not the primary means to settle labor
disputes and labor strikes have been rare in recent times.
¶21. With almost 34 years of independent rule, there has been
virtually no incident of politically motivated attacks on projects
or installations. Anti-American sentiment is very limited and civil
disorder is rare. Although there is a maritime piracy and terrorism
threat in the Gulf of Guinea, there have been no incidents involving
STP.
----------
Corruption
----------
¶22. Corruption has increased during the past decade in step with
greater economic development, and mainly consists of bribery,
embezzlement, and mismanagement of public funds.
¶23. Analysts attribute the recent rise in corruption to escalating
poverty, the absence of regulations, low wages for government
workers and officials, and lack of strong leadership. Signs of
corruption are particularly obvious during election campaigns, when
voters receive money to favor certain candidates or political
parties. By and large, since democratization was introduced in
1990, various forms of infighting, high levels of corruption, and
administrative mismanagement have characterized political life in
STP.
¶24. The STP government has denounced corruption and pledged to take
steps to prevent and combat it, and corruption is widely perceived
as immoral. An anti-corruption law has been approved and
promulgated but not yet publicized. In support of the government's
anti-corruption agenda, the National Assembly approved an oil
revenue management law, and the GoSTP started reviewing and updating
existing contracts with some foreign companies to favor
liberalization and free market competition. For instance, the
National Assembly ordered an investigation on the JDZ second round
bid for the oil blocks of December 2004, which had been the focus of
public criticism for corruption. The Attorney General undertook an
investigation and concluded that the procedures used to award the
licenses were seriously flawed and failed to meet minimum acceptable
standards. To date, however, no consequences have resulted from the
investigation. More recently, several high ranking government
officials, including two former Prime Ministers, have been accused
of corruption and mismanagement. An investigation is underway, but
its outcome is uncertain.
-------------------------------
Bilateral Investment Agreements
-------------------------------
¶25. As of January 2009, the US has no bilateral investment or
taxation treaty with STP. STP has signed bilateral investment
agreements with Portugal, Angola and Gabon but is party to no
bilateral taxation treaties.
--------------------------------------------
OPIC and Other Investment Insurance Programs
--------------------------------------------
¶26. There is currently no OPIC or other investment insurance program
in STP.
-----
Labor
-----
¶27. A significant portion of the STP workforce is well educated,
although not at the university level. The workforce is
multi-lingual (Portuguese and French) and young. Further training
is needed as the economy continues to develop. The cost for basic
unskilled labor is about USD 35-50 per month, and it is increasing
over time. Minimum wage, workday, overtime, paid annual vacations
and holidays are established by STP labor laws. Women are entitled
to state-funded maternity leave for a period of 30 days before and
30 days after childbirth.
--------------------------------
Foreign Trade Zones / Free Ports
--------------------------------
¶28. STP currently has no free trade zones or free ports. However,
the Free Zone Authority (AZF) was recently established to create a
free trade zone in STP. The AZF is working with private
institutions and companies to acquire funds for the implementation
of the free trade zone. According to the GoSTP, there are many
foreign companies interested in the development of a STP Free Zone,
motivated by the recent oil discoveries both in the Joint
Development Zone (JDZ) shared with Nigeria and in STP's Exclusive
Economic Zone (EEZ).
------------------------------------
Foreign Direct Investment Statistics
------------------------------------
¶29. Detailed statistics are unavailable, but Foreign Direct
Investment (FDI) appears to be increasing due to structural
macroeconomic reforms that have increased investor confidence, as
well as recent developments in the petroleum and tourism sectors and
the process of privatization being undertaken in STP. The share of
FDI in the country's gross fixed capital increased to 45.7% in 2003
after having been stable at 14-18% for several years. In 2006, FDI
reached USD $16 million.
REDDICK